Air fare war becomes a bumpy ride for Virgin

Page Tools

Budget airline Virgin Blue conceded yesterday that with Qantas and the national carrier's off-shoot, Jetstar, on its tail, earnings so far this financial year were down 22 per cent.

The stock's 29-cent fall yesterday to $1.75 marked its worst day since Virgin Blue listed at $2.25 on the sharemarket last December in a blaze of publicity.

The airline's second largest shareholder, the British billionaire Sir Richard Branson, was not at yesterday's annual meeting in Brisbane. Virgin Blue's chairman, Chris Corrigan, told shareholders it was not just Jetstar dogging Virgin Blue.

He also blamed rapid expansion, high fuel costs, the threat of terrorism and the SARS virus.

Virgin Blue's chief executive, Brett Godfrey, shrugged off the share slump and the competitive threat from Jetstar, saying his airline remained on track to meet its financial targets for 2004-05.

"All I can say is that I haven't sold any stock myself," he told reporters after the meeting.

AdvertisementAdvertisement

After the successful launch of Jetstar, and with parent Qantas expected to report a record annual profit of up to $700million later this month, Virgin Blue is now the airline under pressure.

After a poor April and May, Virgin Blue's loads recovered in June as Jetstar took to the air.

In July, Virgin Blue carried a record 1.1 million passengers and loads were 81 per cent.

"I can say categorically that we're doing reasonably well in the Jetstar markets," Mr Godfrey said.

However, stock watchers are worried that, because of the intense competition in the domestic aviation market, Virgin Blue is selling seats too cheaply.

There are also concerns that Jetstar's own ambitious fleet growth plans could add to Virgin Blue's woes.

"The capacity issue hasn't really started yet, so we would be very sceptical going forward," said Jason Smith, an analyst with Citigroup Smith Barney. He said both airlines would increase their fleets by 14 per cent this fiscal year, and 17 per cent in 2004-05.

Although the rising price of fuel is hurting all airlines, Mr Godfrey said Virgin had no immediate plans to increase the $6 surcharge it already had in place.